The low tax splash

Hopi Sen
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14 February 2013

The Conservatives have tried unsuccessfully to use Europe and welfare to get off the floor. Ed Miliband’s tax announcement is intent on pinning them down

Viewed from Europe, British politics must seem rather obsessed with causing a splash abroad.
British politicians pitch up at international events to lecture everyone, cause trouble at summits, give passionate speeches on the future of Europe, and generally give our allies the impression that for the British, the future of Europe is of absolutely fundamental, primary concern.

The British may be ‘bad Europeans’, but at least we care, eh?

Except it turns out we don’t, particularly.

Any Conservative politician who hoped that the Prime Minister’s promise of a referendum on leaving the Europe Union might ‘light up such a flame in England as shall never be extinguished’ was to be sadly disappointed by the public response to his attempt at European flame-throwing.

Opinion polls showed a conservative recovery that lasted all of two days before returning to the status quo ante of steady Labour poll leads.

The evidence suggests British voters may not like Europe much, but we also don’t care much about being promised a vote about leaving Europe. Nor has the recent budget deal seemed to make much of a difference to public attitudes.

It is these very British beefs that the Labour opposition is getting more and more effective at exploiting. Whether Horsemeat in Burgers or the decline in GDP we saw at the end of 2012, Labour’s assault on the government is now co-ordinated, effective and unified. Labour politicians consistently repeat that the government is out of touch, incompetent, unfair and not delivering the growth Britain needs.

Welfare policy provides an object lesson. The public mood is generally set against high welfare payments, so you might expect that the government’s decision to hold increases in benefits below inflation and limit payments given to social housing recipients would be well received by the public.

But Labour has aggressively exposed the inconsistency between political rhetoric and policy reality and highlighted the human cost of this cheese-paring. When Conservatives claim welfare cuts are aimed at stopping “shirkers and skivers”, Labour politicians respond that the people most affected are low paid working families, not those who won’t work.1

Further, when Conservatives say they are trying to get the ‘out of control’ social housing bill down, Labour MPs relate the devastating stories of families suffering through personal tragedies. We hear of those dealing with the death of a child, now being forced to move home because the new rules mean they cannot afford to keep their child’s bedroom.

These attacks are given extra force by the fact that the Government is cutting tax on the highest salaries, underlining Labour claims that under this government those with the broadest shoulders are bearing too light a burden. This is not the “one nation” we need, say Labour politicians, shaking their heads in dismay.

This attack has worked. Labour strategists are quietly contented with the Government’s inability to use Europe, welfare or a variety of social policy changes to climb off the polling floor.
There is one cloud on the horizon, however.

Go to the footnotes of any issue, or press shadow ministers, and you find a consistent reluctance to set out what “One Nation” Labour would do differently about any of this.

This is not hypocrisy. It is the realism of a potential government colliding with the rhetoric of an effective opposition.

Things should be different, must be different, Labour types have said, but it is too soon, inappropriate, unreasonable to say the current Government’s decisions would be unpicked by a future Labour government.

We will have to deal with the economy we inherit, we are told. There will be many challenges to address, MPs say. We won’t be able to undo all that we would wish, or change all we would like. It would be foolish to announce detailed policy now.

All this is true. Yet it leaves a certain creative ambiguity about what a future Labour government would do. That’s why the Prime Minister mocked Ed Miliband this week for announcing a major policy speech on the economy, quoting an invitation which told the audience “not to expect any new policies”.

In the longer term, to find their way through this, Labour is conducting a major policy review.
The policy review chief, Jon Cruddas, has argued that the underlying theme of this review would be a twin stress on supporting “earning”, through policies that deliver higher living standards for workers while encouraging a sense of “belonging” through policies that support a shared sense of national community – whether through more social housing, “relational” welfare, sensitivity to immigration or greater support for social care.

The difficulty comes with the question of how to distribute very limited resources among these priorities. The latest data suggests that the current Government’s planned fiscal consolidation will have to be extended over the next parliament. This means the challenge for Labour is how to meet the conflicting challenge of calling for more spending and more state action to support living standards, while at the same time reducing the money the state borrows, all without scaring the voters with either savage cuts or tax increases. This week, we saw the first policy fruits of this approach on short term policy.

During the same speech the Prime Minister had mocked for being policy-free, Ed Miliband turned the joke around, announcing that a Labour would introduce a low 10p rate of tax for the lowest earners. This new lower tax rate would be funded by a tax on multi-million pound homes. This represents a straightforward, limited, redistribution from the wealthy. It sounds, and is, both popular and populist.

It’s also both an embrace and a repudiation of Mr Miliband’s mentor, Gordon Brown, who both introduced and repealed the 10p rate as Chancellor, and just as significantly, a message to Britain’s junior coalition partners, the Liberal Democrats, who have long supported a tax on the most expensive homes.

Yet this policy too came with a footnote. It is not a firm, guaranteed manifesto pledge. After all, what if the government were to introduce a lower tax rate themselves in the meantime?

They may just do that. Next month Tory finance minister George Osborne produces his own budget. He now knows that Labour support a lower rate tax cut. Influential Tory voices have been calling for lower taxes for the lower paid.If Osborne chooses to outbid Labour on low tax, British politics could get very interesting indeed.

What’s more, none of it will have anything to do with Europe. Praise the Lord!

Hopi Sen is a former head of communications for the Parliamentary Labour Party. He is now a consultant, writer and commentator. He also blogs at hopisen.com

A contribution to State of the Left, a monthly insight report from Policy Network's Social Democracy Observatory.

1 There are precious few such “welfare families”, though they loom large in the electoral imagination.

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